Multi-Level Marketing (MLM) Businesses and Taxes

Multi-Level Marketing businesses (MLMs) have exploded across the country; especially among the military spouse community. MLMs allow military spouses to run their own businesses at home and the job can move with their military spouse. I don’t have an accurate count but I’m sure there are nearly a hundred different MLMs out there. I’ve experienced the following MLMs: Pampered Chef, Amway, WUN Life, Isagenix, Pure Romance, Nerium, Origami Owl, Kyani and Scentsy.

A key thing MLM operators need to know is how to file their taxes. Although I haven’t run an MLM; I do have sufficient experience in tax preparation and here are some suggestions I’ve found doing research on this reader requested topic.

·         Create a separate checkings account to run your MLM. This will allow you to quickly differentiate between costs of running the MLM and income you’ve earned which will come in handy when dealing with deductions.

·         Before you even start your MLM find out if they give you a 1099-Misc Income Tax Form which identifies how much the company records as income you’ve made. Talking with MLM owners I found out that Pure Romance, Pampered Chef and Nerium file 1099-Misc forms with the IRS so you can claim that on your taxes as regular income. If an MLM doesn’t provide a 1099-Misc then it is incumbent on MLM operators to figure out how much income they’ve made. This is easier if you have a separate checkings account.

·         Running an MLM is similar to being self-employed and as such you can claim routine expenses as deductions if you itemize your deductions. If you have a separate checkings account it will make it easier to identify the costs. Some common deductions are phone and internet, party hosting expenses and gas/vehicle expenses for those MLMs which require frequent deliveries and travel. Itemizing deductions can help decrease the tax burden but it is important to ensure you’re legally entitled to the deductions.

·         If your tax situation requires you to itemize deductions then I recommend seeing a tax professional; either a tax preparation company or with a Certified Public Accountant (CPA). A professional can ensure you meet the qualifications for itemizing certain expenses and protect you from an audit.

·         For my non-military readers, if your MLM is your family’s sole source of income PLEASE ensure you meet the necessary requirements to comply with the Affordable Healthcare Act (aka Obamacare). The penalties can be steep and are basically equal to the cost of a “bronze” health care plan. So until the law is changed or repealed, it’s a better return on investment to just ge the healthcare. Like I said before, an MLM is similar to being self-employed so you’ll need to ensure you comply with the federal government’s requirements for health care.

If you’ve run an MLM and filed taxes before please leave me a comment or recommendations you have for other MLM owners.